Markets and sterling volatile amid Brexit jitters

European stocks slid to their lowest in nearly four months and sterling continued to fluctuate as investor jitters intensified ahead of Britain’s EU membership referendum next week.

The Stoxx Europe 600 Index fell 1.8% to 326.8 at the close of trading. On Friday, European stocks slumped the most since the nadir of the February selloff as risky assets were shunned before a slew of monetary-policy and political events.

The UK holds its referendum to determine whether or not to stay in the EU on June 23. Optimism that it will choose to remain has given way to fear in global financial markets since the middle of last week as polls indicated the vote is too close to call.

Investors are also bracing for the Federal Reserve’s rate decision and chairwoman Janet Yellen’s commentary afterwards, as well as looking to Spain’s general election scheduled for June 26.

“There are many uncertainties, so we could continue seeing declines and touch new lows in the days to come,” said John Plassard, a senior equity-sales trader at Mirabaud Securities in Geneva.

“Even though nobody is expecting a rate hike, everyone will look at what Yellen will say at the press conference. We are 10 days from the Brexit vote, and also days away from the election in Spain, while oil is lower and volatility is the highest in months.”

Fresh surveys yesterday showed that Britain’s Leave campaign has widened its lead over the Remain campaign.

According to two ICM polls, one online and one conducted by telephone, ‘out’ held 53% support compared with 47% support for ‘in’, according to The Guardian, which sponsored the telephone poll. That compared with a 52%-48% split in favor of “Out” in ICM polls two weeks ago.

The pound fell 0.2% to $1.4229, after earlier touching $1.4116, the lowest since April 14.

Sterling tumbled the most since February on Friday after an ORB/Independent poll showed a 10-point lead for Leave. Surveys at the weekend were less stark, with one online poll by Opinium for The Observer showing 44% support for Britain staying in the EU and 42% against.

The UK’s currency has dropped about 3.5% this year, the worst performance among G10 peers, as investors assess the risks of an EU exit. It reached a seven-year low of $1.3836 in February after prime minister David Cameron announced the date of the vote, and has since fluctuated, often wildly, as polls suggested both sides could still prevail.

Whatever the result, June 24 is likely to see further big swings in the currency.

The day after the referendum, the pound will either sink to the lowest level in more than three decades or climb toward the highest this year, according to a Bloomberg survey of economists.

Most see a drop below $1.35 if Britons decide to leave the EU, while the median estimate following a victory for the status quo is for it to jump to as high as $1.50.

Some analysts are more optimistic on the pound. Investors should start buying the currency now, and keep the trade until after the referendum, to benefit from a likely vote for the UK to remain, according to Aurelija Augulyte, a strategist at Nordea Markets in Copenhagen.

The Ftse 100 fell by 1.16% with declines of around 1.8% evident on Frankfurt’s Dax and the CAC 40 in Paris.

Bloomberg and Reuters


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